Business

Published: Friday October 30, 2009 MYT 2:10:00 PM

Asia needs own financial system, says former Bank Negara official


KUALA LUMPUR: Asia needs to have its own financial system to maintain stability and succeed in this sector, said former Bank Negara Malaysia assistant governor, Datuk Seri Andrew Sheng here on Friday.

He also said this was due to the rising volatility in the global financial market with very large capital flows.

"The world has changed and the financial market has become more volatile, and there are very large capital flows," he told reporters on the sidelines of the 10th Emerging Markets Programme by the Securities Commission here.

"Asia must have its own policy measures to deal with this, in order to maintain stability," he added.

He said this after delivering a presentation,"Going Forward: What will it mean for Regulation in Emerging Economies", at the programme.

As for the debates on reforming regulatory architecture, Sheng suggested a simpler form of International Financial Reporting Standards (IFRS), for emerging markets, with priorities for implementation.

He said there might also be a need for new tools to deal with large capital flows, asset bubbles and newer risks.

"Asia is more rudimentary and bank-based, thus not so sophisticated. We didn't suffer as much because we were more prudent," he said.

According to Sheng, among the major problems in securities regulation were insufficient attention on risks in financial innovation/engineering, including market manipulation in Credit Default Swaps (CDS).

Asked if the more complex financial products should be a cause for concern, he said investment banks should explain to the public what these new products entailed.

"After the products are introduced, regulators should look at how they are being traded and how people are using them to manage risks," he said.

"This was the big mistake made by the West. They allowed these products into the market, but nobody investigated how, what appeared to be relatively simple products like mortgages, could evolve into very complex and toxic entities like Collaterised Debt Obligation (CDO) and CDS.

Sheng added that newer product innovation was inevitable if a country like Malaysia wants to compete and grow in the financial sector.

"It is very clear newer products are coming, but we should be aware of the risks," he said.

He said according to the City of London Analysis, Asia is now amongst the most important sources of liquidity, credit and investment capital within the global financial system.

"However, its long-term challenge is to develop the technical and human capacities to meet the needs of financial services consumers, in the region's rapidly growing economies.

"Thus, among the financial centres that are likely to become more significant in the next few years include Shanghai, Shenzen, Hong Kong, Beijing and Singapore," he stated. - BERNAMA

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